Cash balance of $11.4 million supports continued execution of growth strategy

Gross Margin of 74.6% slightly ahead of forecast

CHRISTCHURCH, New Zealand – August 26, 2014 – SLI Systems (NZX.SLI) today reports progress in line with forecasts in its first full year as an NZX listed company, delivering strong growth well ahead of the broader e-commerce market, and prudent management of its cash reserves.

Total operating revenue for the 12 months to 30 June 2014 was $22.1 million in line with the $22.2 million SLI forecast at the time of its May 2013 Initial Public Offering (IPO).

Annualised Recurring Revenue (ARR), which combined with our Customer Retention Rate, is an estimate of our expected forward revenue for the year, prior to any additional sales, was $24.9 million, up 29.4% on the June 2013 figure of $19.3 million. This figure was 96.3% of the $25.9 million we forecast on account of delays in finding the right sales and marketing recruits.

Our Customer Retention Rate remains strong at 90% and is in line with our forecast of 91%. The strength of this metric is directly related to the return our customers achieve from paying for our services and underlines our relevance in the e-commerce software market. For example, America’s oldest flour company, King Arthur Flour, saw sales conversion rates increase from 3.7% to almost 6% after implementing SLI’s services.

In the U.K. new customers included: fashion jewellery retailer, Claire’s Accessories, and clothing retailer French Connection. In Australasia SLI signed the Super Retail Group, which includes the Rebel Sport brand in Australia and the Supercheap Auto brand in New Zealand.

While we are investing in growth, we focus on profitability at the Gross Profit level. Our Gross Margin of 74.6% is slightly above our forecast and consistent with historic levels. We believe growing a high margin revenue stream represents a solid return on our investment in growth initiatives.

By design, SLI has been investing ahead of revenues. As a result we posted a loss before tax of $5.9 million, less than the $7.1 million forecast loss. We expect to continue to make losses for the foreseeable future as we invest in growing our high-margin recurring revenue.

Our cash reserves stand at $11.4 million, well ahead of the $7.3 million we forecast. This improved position reflects the strong cash-generative characteristics of the business, lower than forecast expenditure, due to the slower than forecast sales and marketing team recruitment plus additional capital from stock options being exercised.

Total customer numbers at 511 were down on the 581 customers we forecast but the initial deal size for new customers is 20% larger than we forecast. We see this result as a positive indicator that we are recruiting larger e-commerce companies and selling a broader range of products.

SLI Chairman Greg Cross said: “SLI operates a strong Software as a Service business model that generates a strong recurring revenue stream, with high retention rates and high margins. We enjoy a growing multinational reach with presence in the U.S., U.K., Australasia, Brazil and Japan. Ongoing e-commerce growth affords us opportunities globally that we will pursue in a focused and deliberate manner in the year ahead.”

SLI CEO Shaun Ryan said: “SLI can look back on its first year as a publicly listed company with some satisfaction. Our 29.4% growth in ARR is well ahead of the 11% growth3 in the market for software servicing e-commerce businesses, reflecting our market-leading capabilities.[us_single_image image=”5824″ align=”center”]97% of our ARR comes from international markets with the U.S., the company’s largest market, generating 58% of annualised recurring revenue. North American ARR grew 22%. We see an opportunity to increase growth in the U.S. and given this, SLI has a continued focus on hiring marketing and sales staff in the U.S. office.

SLI opened a new office in Japan in the 2014 financial year, the second largest e-commerce market in the world. Dedicated site search providers are under-represented in this market. SLI continues to enhance its products to meet the needs of Japanese customers. We have not seen significant revenue or customer growth in Japan because we took longer than anticipated to hire. However, we expect better progress in this financial year.

Innovating with new products
SLI served over 1.2 billion search queries in June across its customers’ online shops. Beyond offering comprehensive site search capabilities, SLI’s services generate a stream of data that can be used as the technical underpinning for new services to facilitate shopping and increase sales on our customer’s websites.

This year the company launched two new services: Learning Recommendations and Dynamic Product Banners. Both services are highly complementary to SLI’s flagship Learning Search service. The new products deliver our customers significant incremental sales gains beyond those already delivered by Learning Search. Early customer results have shown both products to be ROI positive, and they have the potential to be adopted broadly by our customers in the year to come.

SLI expanded its global footprint, growing the range of languages Learning Search supports from six to 14, adding Arabic, Danish, Dutch, Italian, Indonesian, Polish, Russian and Swedish in addition to the already-supported English, French, Japanese, German, Portuguese and Spanish languages. The development is particularly useful for the many customers expanding their businesses by selling outside of their own countries. SLI continues to work on expanding its language support.

The new financial year Dr. Ryan continued: “We enjoy a vast untapped market and product awareness that is in its infancy. Recent research out of the U.S. indicates there are well more than 100,000 legitimate e-commerce sites in the world4, and only a small portion of these have any kind of premium site search software or service in place.

“Our customers get fantastic value from our services and we see there is a huge opportunity to grow our business globally. I’m very optimistic about the year ahead.”

About SLI Systems
SLI Systems (SLI.NZ) enables the world’s leading e-commerce retailers to accelerate sales by connecting shoppers with the products they’re most likely to buy. With offerings that include site search, navigation, merchandising, mobile, product recommendations and user-generated SEO, SLI Systems is the most chosen cloud-based site search provider to Internet Retailer’s top 1,000 retailers. The company’s patented technology continuously learns from the actions of visitors to deliver the most relevant results possible. Whether via PC, tablet or phone, a site powered by SLI delivers the kind of satisfying search experience that increases conversion rates, secures brand loyalty and results in higher order values. SLI operates on five continents. For more information, visit sli-systems.com.

1Annualised Recurring Revenue (ARR) is calculated based on the subscription revenue generated from the existing customer base in the reference month and then annualised. ARR in this document is calculated based on the exchange rates at time of preparation of the company’s prospectus . When ARR is presented for a historical time series all points are calculated on a constant currency basis. This is a non-GAAP financial performance measure used internally by SLI as a basis for its expected forward revenue. ARR does not account for changes in behaviour of customers. The constant exchange rate provides SLI with a better understanding of the business’ underlying performance over time. ARR only includes revenue from SLI’s customers for its Learning Search and related products and its Site Champion product. For the Site Champion component of ARR it is necessary to apply judgement to mitigate the effects of one-off events that impact the base month revenue of the calculation.2Forrester Consulting Inc. April 2013 (www.forrester.com)3Forrester Consulting Inc. April 2013 (www.forrester.com)4RJ Metrics CEO Robert J. Moore, How Many Ecommerce Companies Are There?